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Penn makes Strip pitch

Penn National Gaming has emerged as the stalking horse bidder for the bankrupt Fontainebleau Las Vegas, but it is offering less than $300 million for the stalled Strip resort, which is valued at almost $3 billion.

Penn spokesman Joe Jaffoni confirmed Tuesday the company remained interested in the project, which was 70 percent complete when construction work was halted in April.

Cost overruns and the failing Las Vegas condominium market, which zapped potential sales, affected financing for Fontainebleau. After lenders cut off $800 million in financing, Fontainebleau owners filed Chapter 11 bankruptcy on the project in U.S. Bankruptcy Court in Miami.

"All we can say right now is the company is still looking at the Fontainebleau and is evaluating other Las Vegas opportunities," Jaffoni said.

An attorney for Fontaine-bleau's owners told the bankruptcy court that Wyomissing, Pa.-based Penn National is only willing to pay less than $300 million for the property, according to The Miami Herald. He said the project has already cost about $2 billion. Analysts have said it could take $1 billion to $2 billion more to complete.

Union Gaming Group principal Bill Lerner told investors Tuesday that it would take at least $1.5 billion to complete Fontainebleau, taking into account exterior work that remains, along with virtually all of the interior.

As a stalking horse bidder, Penn would set the minimum price for the 3,889-room hotel. Others could offer more.

"It never gets worse for us. It only been substantial and perhaps extraordinary," Richard Mason, a New York lawyer representing Penn, told the Miami Herald. "There's a lot of money left to spend, and I think anyone's price would reflect that."

In exchange for its stalking-horse position, Penn would finance the project's bankruptcy expenses.

Lenders are pushing Judge A. Jay Cristol to shift the bankruptcy case from a Chapter 11 reorganization to a Chapter 7 liquidation through a court-ordered sale.

Lerner thought that Penn, if successful in acquiring Fontainebleau, would take on a partner to help complete the project. Penn, he said, would operate the Fontainebleau.

"Penn would have the management contract for Fontainebleau, perhaps along with fees for lending its database and programming to the property," Lerner told investors. "In such a structure, Penn can offer Las Vegas to its player database with relatively minimal capital risk yet a favorable return on investment capital."